We consider situations where a sale affects the ensuing interaction between potential buyers. These situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity-dependent externality. We construct a revenue-maximizing auction for the seller. We observe that: 1) outside options and participation constraints are endogenous. 2) The seller extracts surplus also from agents who do not obtain the auctioned object. 3) The seller is better-off by not selling at all (while obtaining some payments) if externalities are much larger than valuations.
|Original language||English (US)|
|Number of pages||16|
|Journal||American Economic Review|
|State||Published - Sep 1996|
ASJC Scopus subject areas
- Economics and Econometrics